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Whistleblower rule not limited to SEC complaints: Court


Ruling on an issue that has divided federal appeals courts, the 9th U.S. Circuit Court of Appeals in San Francisco has held that Congress did not intend to limit Dodd-Frank anti-whistleblower provisions only to those who disclose information to the U.S. Securities and Exchange Commission.

“Rather, the anti-retaliation provision also protects those who were fired after making internal disclosures of alleged unlawful activity under the Sarbanes-Oxley Act and other laws, rules and regulations,” a divided three-judge panel the 9th Circuit said in Wednesday’s divided ruling in Paul Somers v. Digital Realty Trust Inc. et al., which upholds a lower court ruling.

Mr. Somers, who was a vice president at San Francisco-based Digital Realty Trust Inc., a real estate trust, was allegedly terminated after he made several reports to senior management regarding possible securities law violations, according to the ruling. He was not able to report his concerns to the SEC before his termination, according to the ruling.

Mr. Somers sued Digital on charges including violation of the in the Dodd-Frank Wall Street Reform and Consumer Protection Act. Digital sought dismissal of the case on the basis that Mr. Somers was not a whistleblower because he had reported possible violations only internally, and not to the SEC.

The U.S. District Court in San Francisco, which refused to dismiss the case, was upheld by the appeals court in its majority ruling. The appeals court ruling says it agrees with a ruling by the 2nd U.S. Circuit Court of Appeals in New York that “even if the use of the word ‘whistleblower’ in a last-minute addition to (Dodd Frank’s) anti-retaliation provision created uncertainty, an SEC regulation resolved any ambiguity, and was entitled to deference.”

The ruling notes the 5th U.S. Circuit Court of Appeals in New Orleans, however, has “strictly applied” the Dodd-Frank definition of whistleblower, which required dismissal of a case in which a plaintiff had not made disclosures to the SEC.

The dissenting opinion in the 9th Circuit case said it agreed with the 5th Circuit.